Health and Safety

Readers discuss the importance of weighing up security and stability when choosing a new location for share services, the strain of IT M&A, and why cloud computing matters.CFO Readers, CFO Europe MagazineNovember 3, 2008

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One key area that I feel was overlooked in "Here, There and Everywhere" (October) is consideration of the security and stability when choosing a site for a shared service centre.

The article rightly points out the benefits of some of the exotic locations opening up in Europe. But, particularly in light of the current economic turbulence, there are other essential elements to a location analysis. The first is physical security from natural disasters, as well as from criminal and terrorist activity. The second is political stability, particularly with regards to the local tax and regulatory policies.

Use of a hybrid SSC model can spread some of these risks, but each location, whether outsourced or in-house, should be con-sidered in relation to robust security and stability criteria. Deterioration in these areas could counteract any benefits from lower labour costs and other areas identified in the article.

"Braced for Change" (September) touched upon the concerns of customers affected by M&A deals in the technology sector. Indeed, deciding whether to support the products used by customers of the acquired vendor is one of the significant challenges facing deal makers in this industry — and an area that can lead to adverse business and accounting consequences.

Customers of tech companies often request "sunset clauses," protective contract terms to ensure that products they buy will still be supported if the vendor is taken over. But such provisions can constrain a prospective buyer, so when negotiating sunset clauses with customers, companies should consider how the clauses would affect any future sale of the business.

Sunset clauses are particularly prevalent, and potentially problematic, in deals involving software licensing. Problems can arise from accounting rules particular to software revenue recognition in the US. Because sunset clauses often continue for many years, these terms could require deferral of revenue even though the customer has already paid for the product.

In other cases, for example in the instance of a planned sale, a company can negotiate modified contracts with customers to assure them that products will be supported after the deal is completed. Interestingly, this type of modification can result in the acquirer being able to recognise more revenue from these customers than they otherwise would have owing to the increased support.

There is huge potential for cloud computing to provide a low-cost, no-commitment way for companies to get new services to market quickly with minimal infrastructure investment ("A Place in the Cloud," September). But it has to be handled correctly.

With the market in its infancy, the technology is still a work in progress. As reliability increases and organisations begin to deliver more critical services via cloud computing, IT managers must be equipped to deal with the increased complexity of using applications held in data centres.

The security concerns over how sensitive data is streamed over the internet must also be addressed. The first steps here are to analyse internal security policies and introduce heightened control software to mitigate the risk of attack. Companies have already begun to remove the "ring fence" from their IT systems and cloud computing will see this trend increasing. That means protecting data must be a priority.

In times of economic uncertainty, CFOs want to control IT costs and improve efficiency. Cloud computing will allow this, but only if IT teams keep their feet firmly planted on the ground.